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TSP Talk Blog

Rate hike Wednesday?

It seems pretty obvious that there is a push to get the Dow to 20,000. With the help of the rising price of oil, which has pushed energy stocks higher, plus a parabolic move in the financial stocks, the Dow nearly hit 20,0000 yesterday getting as high as 19,953.75 before closing 89-points short of the milestone. As we mentioned yesterday the small caps, which have been strong, are lagging a bit lately as the financial and energy continue to lead the Dow and S&P.

Here's why the Dow has outperformed... the Financials are up 21% since the election.

While the energy sector is up 18%. That's compared to the S&P 500 which is up about 9% and the Nasdaq which has gained 7.5%.

The Fed's FOMC policy statement will be released this afternoon and everyone is expecting a rate hike, but the question is, will they hint at the plans of their next potential action? Another hike? A one and done? That will be the market catalyst.

This may be a desperate long shot, but consider the ramifications if there were any possibilities that it comes to fruition. The Chairman of the Clinton Campaign John Podesta, is seeking to get the Electoral College to investigate the connection between Donald Trump and his campaign to the Russian government, before voting on Monday December 19. Normally a formality, can you imagine what might happen to the stock market should the Electoral College not give Trump the expected 270+ Electoral votes that were won in the general election, and balk at qualifying him? Not just because it could change the outcome, but if the Electoral College does make a different recommendation, what would that mean for the future of the U.S. political system? There is a system in place if no candidate gets the 270 votes needed but it has never happened to a president. It has happened to one vice-president nearly 200 years ago. For the record, December 28 is the deadline for receipt of electoral votes to Congress. January 6 is the scheduled date that Congress counts the electoral votes.

We know that there are democrats who would welcome Trump being disqualified or voted out, but there are also republicans that are not happy with a political outsider coming in and taking over as the leader of the free world. Is this something to be concerned about or plan for? Whether you support Trump or not, we can only imagine the financial reaction if the Electoral College does not confirm the election results on Monday, should that information get out before the aforementioned deadlines. Sounds like fear mongering, but this could be a big story should it play out.

Once the Dow hits 20,000 and the Fed raises rates, perhaps attention will turn toward this story, as unlikely as it may seem.

The SPY (S&P 500 / C-fund) is starting to get a little parabolic with another rally to new highs and this one pushed it above the already steeply rising resistance line. Very unusually bullish action. I can't see this resolving well with support getting very thin. Stocks may remain in a bull market for an extended period of time but look for a shakeup in the coming days or couple of weeks.

The DWCPF (S-fund) was up slightly again and is testing its rising channel's resistance line.

The Nasdaq 100 finally broke out and it looks like it had formed an inverted head over the last few months. I was going to mention this pattern yesterday but to be honest, I didn't think it was going to breakout because it had been lagging the other indices. It did reverse off the highs so we may get some kind of short-term pullback, so we'll watch the neckline to see if it holds as support.

The EFA (I-fund) has joined the fun in the last several days. It's not at the highs yet but it's trying to catch up.

The AGG (bonds / F-fund) was up slightly yesterday as it tries to hold above the low on December 1. The Fed policy statement will likely shake things up here. Whether that means new lows, a relief rally, or both, which would probably be the best option if it means a capitulation sell-off followed by a positive reversal. That kind of action could produce a short-term low in bonds, although I do believe bonds are likely going to resume a longer-term bear market after any relief rally.

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading. We'll see you back here tomorrow.

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